The Ratio Bias Phenomenon: Fact or Artifact?

Mathieu Lefebvre, Ferdinand Vieider and Marie Claire Villeval

No 4546, IZA Discussion Papers from IZA Network @ LISER

Abstract: The ratio bias – according to which individuals prefer to bet on probabilities expressed as a ratio of large numbers to normatively equivalent or superior probabilities expressed as a ratio of small numbers – has recently gained momentum, with researchers especially in health economics emphasizing the policy importance of the phenomenon. Although the bias has been replicated several times, some doubts remain about its economic significance. Our two experiments show that the bias disappears once order effects are excluded, and once salient and dominant incentives are provided. This holds true for both choice and valuation tasks. Also, adding context to the decision problem does not change this outcome. No ratio bias could be found in between-subject tests either, which leads us to the conclusion that the policy relevance of the phenomenon is doubtful at best.

Keywords: experiment; ratio bias; error rates; financial incentives (search for similar items in EconPapers)
JEL-codes: C91 D03 D81 I19 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2009-11
New Economics Papers: this item is included in nep-cbe and nep-exp
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Citations: View citations in EconPapers (2)

Published - published in: Theory and Decision , 2011, 71(4), 615-641

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Related works:
Journal Article: The ratio bias phenomenon: fact or artifact? (2011)
Working Paper: The Ratio Bias Phenomenon: Fact or Artifact ? (2011)
Working Paper: The Ratio Bias Phenomenon: Fact or Artifact ? (2009)
Working Paper: The Ratio Bias Phenomenon: Fact or Artifact ? (2009)
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